It was the year 2011, on a trip across the states, when I bought Tony Hsieh‘s book Delivering Happiness at the airport, don’t remember if it was LAX or Las Vegas. It was during my honeymoon trip.
At that time I already know Tony’s profile as Zappos CEO, about its Amazon acquisition, and about the customer experience excellence that Tony and his mates built. I remember that at Privalia, an interim CTO started talking to us about something called “customer-centricity” around the year 2010.
But I didn’t know his story before Zappos, how did he get there, his way to success. This is what this post is about, the evolution of the person, from his early days to his huge success as an entrepreneur. I wanted to share just some of the insights from his book, from the PROFITS section, but ended making a complete summary of it. Apologies if you found it too large.
Brief introduction to Tony
Maybe you don’t know anything about him, so here it is a quick summary:
Tony Hsieh is an entrepreneur and VC who co-founded LinkExchange on the dot com crazy years, bought by Microsoft (1998) by $265M, and who invested in and managed Zappos as CEO from $1.6M (2000) to $1 billion (2009), being bought by Amazon.
Entrepreneurs are born or made?
There are lots of articles, posts, books, about this topic. Don’t want to share any, because I don’t want to start a debate around this. But wanted to point that Tony was a serial entrepreneur since childhood. So in this section I will share all the ideas, and startups, that he ran since being a kid.
Something that the book is aware of is about the competitive Asian culture at that time, pushing their kids to be the bests in academics, fighting for the best jobs, and also mastery with music instruments. You may expect that they learn to work hard from very early ages.
Early days and middle school
At a very little age had very clear that he wanted to raise money in order to have the freedom to do whatever he wanted to. He tried to build a worm farm, organized garage sales, printed his own newspaper, selling Christmas cards in August, etc, with no success but never lost courage to try again.
I failed my way to success.– Thomas Edison. Quote from the book.
Finally had success with a mail-ordered “button-making business”, where he learned that it could be possible to do business by mail, without face-to-face interaction. You could see on this model an online precursor. It worked so well that they had to upgrade the button machine for improving efficiency. They even had to outsource work to his brothers, who also continued “family business” with success after he left. And that happened at middle school.
At high school started with programming. He learned pascal, but had previous knowledge of basic. There was introduced to the world of BBS with a modem, the pre-internet Craigslist. He was a videogame tester (Indy and the Last crusade!) but made more money as a programmer for a company.
There he learned that even in school it sometimes pays to take risks and think outside the box. And also that sometimes the truth alone isn’t enough, and that presentation of the truth was just as important as the truth itself. On the programming company could see that little fun in the office could lighten everyone’s mood.
Then he decided to make money again with mail-order (magic trick) business. He spent a huge amount of money for a kid, but only got one order. That was a lesson in humility. Realized that on the previous biz, he had luck.
College days arrived, at Harvard. First years he didn’t start any new business. But in the senior years decided to run the house dorm grill with his mate Sanjay, later partner at LinkExchange, and started selling McDonald’s burgers, buying them frozen from a real McDonald’s. He got tired from moving daily to the McDonald’s, so turned it into pizza business with MTV videos in the background. And this one had high success.
Met Alfred Lin there, his number one customer, later CFO and COO at Zappos. Alfred bought daily a large pepperoni pizza, even twice a day. Several years later he found out that Alfred was taking pizzas upstairs to his roommates, selling them off by the slice. That’s why he ended up hiring him as CFO/COO at Zappos, he did more money per hour than the pizza business!
After College, Oracle and web design
At the end of senior years, Tony wanted a high paying job, and Oracle paid very well for a junior. So accepted Oracle’s, but soon realized that was a boring and not challenging job. Sanjay had introduced him to WWW, to they started a web design startup making the web for the chamber of commerce, a big mall, and left the well-paid job at Oracle to run their own biz.
They wanted to run their own business and be in control of their own destiny. “This wasn’t about the money, it was about not being bored”. But by the end of the first week it dawned on him that neither of them was actually passionate about doing web design work. It was a lot less fun than what they had fantasized about.
We didn’t know what we wanted to, but we had learned what we didn’t want to do.Tony Hsieh, after Oracle and web design startup
Returning to the question “Entrepreneurs are born or made”, in the particular case of Tony I would say that he was born with this “gene”.
I am not saying that an Entrepreneur can’t be made, but reading his book you can get an idea of what he always wanted, from the very beginning, was to run his own business. He had many failures and successes, and he never stopped trying and also taking risks.
Talented Mr. Hsieh
In Tony’s words: “The skill I honed the most in college was procrastination”. The book is a masterclass of how Tony did the minimum effort required to pass the different learning stages: from instrument classes to college classes.
He later had to pay a bet to his college mates. They bet that he would be a millionaire within ten years. They saw on him a potential enough to bet, and they were right. It took only 3 years.
As a curiosity, and also another proof of his talent, won international collegiate programming contest as Harvard student in 1993.
LinkExchange is the perfect example of a good idea at the right moment, with a little luck. It was an idea to fight boredom. A banner ads exchange service. Remember that they had left Oracle to start their own business, which they killed. The first version took them a weekend work. They tested the idea with some websites, and the positive answer demonstrated that there was a product there.
They were not worried about making money, they still had savings. So they were focused on growing the network. Also they were excited to be creating something that was growing quickly and people appreciated.
Spent half time doing programming, half answering emails. They wanted to answer as quickly as possible. It tuned out they needed help, so new friends entered. Alfred Lin joined them also.
Then, a day, something shocking happened. They received their first offer ever, NY’s Bigfoot wanted to buy the 5-month-old startup by $1M. They rejected the offer and the company continued to grow hiring friends, and friends of friends.
Later, Jerry Yang from Yahoo offered $20M, but they realized that they were young enough (they were 23) to take risks and they passed. Tony shared this decision with the team. They were 25 people. He made his “there will never be another 1997” speech. That decision created tension inside the team of friends, so they felt more relaxed. In Tony’s words: “It was us against the world, and we were going to make sure we would win”.
Finally Sequoia’s Michael Moritz entered as a partner investing $3M. They hired lots of people, but not only friends. They reached a hundred employees.
Building culture, or about losing it
LinkExchange started being a group of friends, and grow to be a larger group of friends, and friends of friends. But at some point, while growing to a larger company, hiring people was not limited to friends.
It seems to be normal. They expanded to more floors in the building, and opened offices in NY and Chicago. And as a result of that, they started feeling that they didn’t know the people, which made sense, but they didn’t know that they were missing to the company’s culture.
As I said before, the first years they were friends, hired friends and people who wanted to be part of it. They had created without knowing it a company culture that they were proud and they enjoyed being part of it.
But now they were growing and hiring smart people, but people moved by other interests. People motivated by money, building careers and resumes, who will work hard and then leave for the next step in their career.
One day Tony realized that he didn’t want to go to LinkExchange, as happened at Oracle. But with the difference that he was its co-founder.
How could happen when he did the 1997 speech only one year ago? How environment had changed from “all for one, one for all” to politics, positioning, and rumors? There wasn’t a concrete cause, a single point in time, or a specific employee. It changed slowly, day by day.
That made them ask for a partnership with Yahoo, Netscape, and Microsoft, companies that they had a great relationship. Surprisingly for them Netscape and Microsoft were also interested in buying. Microsoft won the bidding war offering the biggest quantity of $265M, but with the condition to stay twelve months in the company.
There’s a curious concept shared by Tony in the book at this point, it is called Vest in peace. A pretty common practice in Silicon Valley in acquisition scenarios. It is when people are sticking around but not really doing anything.
Tony was unable to stay the twelve, so he decided to leave the company losing 20% of his amount. People thought he was crazy.
Money versus passion
After LinkExchange acquisition, some questions arise: Now what? What’s next? What is success? What is happiness? What I am working towards?
He made a list of the happiest periods in his life, and he realized that none of them involved money. Building stuff, being creative and inventing made him happy.
We are brainwashed by our society and culture to stop thinking and just assume by default that more money equals more success and more happiness, when ultimate happiness is really just enjoying life.
Decided to stop chasing the money and start chasing passion. This is very cool to say, and maybe it is easier when you are a millionaire.
Chase the vision, not the money, the money will end up following youTony Hsieh’s famous quotes from Zappos
VC and shoesite
Alfred and Tony created Venture Frogs, a VC, and raised $27M from LinkExchange colleagues for investing. The plan was to make single small angel investment in different companies, and then pass them to a bigger VC.
One day a guy named Nick Swinmurn had started a website called shoesite, and wanted to build the Amazon of shoes. It sounded a very bad idea if you think that people may want to try them first. But then he shared that currently it was a 40 billion industry and that people were buying them by paper mail-order catalogs. So customers were already doing it. And also they told to the Tony, the prince of mail-order. It was also the fastest-growing segment in the industry. Then it worth a meeting.
Nick started shoesite doing photos and selling shoes from the shoe store close to his house. He wanted to put up the web to prove that people were willing to buy shoes online. He was testing the idea, testing the product-market fit. And it worked.
As a pre-requirements, he had to search for a partner with experience in the shoe market, and look for a new name. Nick found somebody with experience from Nordstrom, Fred Mossler, and worked in a new name. Finally it came from Spanish word “zapatos” (shoes), zapos. Added a “p” and Zappos was born.
The idea of zappos was to use dropshipping with brands. There were thousands of them. Drop shipment had been never done before in the industry, so they had hard work to convince brands. Zappos would not have inventory or run any warehouse, at least initially.
Sales were growing and Zappos people were doing good, but Sequoia’s investment never arrived, never were interested. Tony and Alfred decided to bet on them and also to start Venture Frogs Incubator, to protect their investments, offering space and services to companies.
It was the year 2000, and dot coms started to crash. Many companies went out of business, so the most VC refused to provide additional funding. A couple of companies moved to the Incubator, but they stopped activities a few months later. Zappos was the only survivor, and they were optimistic to raise $100M, but despite the progress they made, no one answered. They tried to raise funds for their VC, but nobody joined. It was a delicate moment, and personal self-doubt arose.
It arrived a moment where Tony decided to take off his investor hat and put the entrepreneur one, to join full-time Zappos, to help them grow, and to put all his passion in it. Also would put his passion into prove everybody was wrong with them and more accurately with him. But this is another part of the book, so maybe will be another post about the success of Zappos and the learnings we could get from it about company culture, and excellence in customer experience.
To conclude the section and the post, at the end of 2009, Venture Frogs had distributed 5.8 times the initial fund amount to investors, being one of the top-performing funds from 1999.
I hope you found Tony’s story interesting. If you found any misprint, just let me know. Feel free to share any comments!
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